Multi level marketing model of amway corporation

Ha Noi, 2023National Economic University Advanced Education Program --- o0o ---Course: Commercial Business Group assignment Multi level marketing model of Amway corporation Group 5 Lec

Ha Noi, 2023

National Economic University Advanced Education Program

- o0o

-Course: Commercial Business Group assignment

Multi level marketing model of Amway corporation

Group 5 Lecturer: Le Thi Thai Ha

Nguyễn Thị Minh Châu 11219666

Table of content

A Introduction 4

1 History and organizational structure 4

1.1 History of Amway 4

1.2 Organizational structure 4

2 Business sector and main activities 5

2.1 Business sector 5

2.2 Main activities 6

B Analyze their performance based on theories related to commercial business model 6

1 Theories related to MLM model 6

1.1 Direct retailing 7

1.2 Word of mouth 7

1.3 Multi level network 8

1.4 Reward model structure 8

1.5 Unique and Exclusive 10

2 Amway’s achievement 10

C Evaluate the advantages and disadvantages of MLM model, opportunities and threats for Amway 11

1 Advantages and Disadvantages of MLM 11

2 SWOT Analysis 12

Conclusion 15

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A Introduction

1 History and organizational structure

1.1 History of Amway

- 1959: The foundation of Amway

Amway's story began with the friendship between two youths who would become the founders Jay Van Andel and Richard M DeVos became friends at Christian High School in Grand Rapids Both served in the Army Air Corps during World War

II, after returning and went through many ups and downs in their journey of doing business In April 1959 they created The American Way Association, later renamed the Amway Distributors Association and chose as their first product a biodegradable liquid organic cleanser made by a small Michigan firm, the kind of high-demand merchandise that could be easily sold by MLM

- 1962: Amway first became international

Amway opened its first international office in London, Ontario, Canada This would

be the second of over 100+ countries and territories into which Amway would eventually expand

- 1972: Amway acquired Nutrilite

Amway acquired the Nutrilite brand, the firm that had introduced Van Andel and DeVos to direct selling, the brand offerings to include home, beauty and nutrition categories Until now, Nutrilite has grown to become the world’s leading brand of vitamin and dietary supplements

- 1999: Alticor founded

The founder of the Amway corporation established a new holding company, named Alticor and 3 new companies: a sister (and separate) Internet-focused company named Quixtar, Access Business Group, and Pyxis Innovations

- 2019: #1 Direct selling company

Over 60 years after founding, Amway is the “World’s Number-One-Direct Selling Company according to Direct Selling News Global 100 and this is the 8th year Amway had dominated this position

1.2 Organizational structure

- Main departments of Amway:

• Finance and accounts

• Marketing and Sales

Underpinning the whole Amway structure and method of operation is The Amway Sales and Marketing Plan It is a complex, multilevel marketing plan In the company's own words, The Amway Sales and Marketing Plan is "based upon repeat sales of exclusive products and an incentive system designed to

financially reward the distributor in direct relation to the amount of time and effort devoted to the business"

• Human resources and administration

- Board of directors:

2 Business sector and main activities

2.1 Business sector

- The pioneer of multilevel marketing (MLM), Amway Corporation manufactures and sells its own products as well as brand name products from other companies through a network of 3 million independent distributors worldwide Unlike many other MLM firms, Amway offered a broad selection of items, ranging from cleaning products, cosmetics, and vitamins to travel services, discount car purchases, and catalog merchandise

- Catagories:

energy drinks,…

• Gifts (77): seasonal gift, gift for the home, …

• Home (65): Cookware, water treatment, air treatment, laundry, surface cleaners, …

• Personal Care (63): Bath&Body care, hair care, oral care, …

• Catalogs (16)

• Business Materials (6): Logo merchandise, Literature, …

2.2 Main activities

• Product manufacturing

• R&D

• Training

• Design

• Distribution

• Marketing and sales

• Inventory management

B Analyze their performance based on theories related to commercial business model

1 Theories related to MLM model

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1.1 Direct retailing

In traditional retail sales, a manufacturer or wholesaler sells products to a physical store or e-commerce company who then resell the product to the final customer

In MLM, specifically Amway, the product will be sold through representatives

also known as ABOs (Amway Business Owners) or through their website without through any retail outlets This means that you can only buy Amway

products from a distributor or on their website, but not at regular retail outlets

The reason Amway didn't choose retail format is because Amway's direct selling business model is built on the personalized customer service and product recommendations received from your Amway distributor, who know about the products and their benefits

That's the difference between direct selling and traditional, online retail This is a direct business model and Amway believes their distributors do a great job taking care of their customers as they have a vested interest in maintaining customer satisfaction and growing the customer base

Currently, Amway has established several buildings called Amway center synthesize the experience of shopping for goods directly at the supermarket; Nutritional beverage experience area - Phyto Café; skin care experience area - Home Beauty; nutrition counseling area - BodyKey; food experience area - Home party, customer care switchboard area, meeting area and business office block This form of Amway can enhance the customer's experience when directly experiencing the product and increase reliability

1.2 Word of mouth

Because there is limited retail point, brand awareness is not high in the minds of customers Therefore, the product sales will depend heavily on the ABOs

performance: the ability to market the product to the consumer and their network

Typically, a direct sales representative sells products and services initially to friends, family members, and coworkers Over time, a successful representative develops a larger pool of customers through referrals and marketing efforts

1.3 Multi level network

In Amway’s Multi-Level Marketing model, the middlemen are eliminated Instead

of having a large number of distributors, the company deals directly with a

person who works as a distributors-marketers-salespersons-delivery agent

The business model is based on people who wish to start or advance into an

independent small business For this purpose, Amway has succesfully

established massive business units or “units of distribution” depending on the markets in which it executes its business operations globally Through these individual distributors, Amway has entered into partnerships with various regional business owners in countries around the globe and have implemented its business model on a global scale

As a result of this, Amway has increased its market penetration in the retail industry Supported by 20000+ employees empowering the millions of customers popularly called Amway Business owners (ABOs) through seminars, entrepreneurship programs have helped the company in making its products available globally

1.4 Reward model structure

• Stair-step breakaway MLM plan

The Stair-Step Breakaway MLM Plan has a hierarchical management structure The percentage of commissions will be divided according to the hierarchy Each tier will have its own commission level and volume commission (surplus value) will

be calculated based on the balance from the high commission (%) minus the er lower commission (% )

Eg: If A joins the network and earns 12% at his current rank while B earns 5% in his team → A will receive 7% (12% - 5%) of the value of any goods sold by B, regardless of where B is in the system (as long as there is no person higher than

B between the two)

Consequently, the system will constantly make sure that it is valid and equitable When the distributors in your lower tier network reach a certain level of excess, they can "drop out" from your team Direct commissions from their sales through their network or for their products will no longer be paid to you Nevertheless, you will continue to receive a modest commission income from the network and volume

of the split group of distributors Remember that despite coming from a large network, the commission percentage is low

• Amway's Compensation Model:

There are 3 types of income for Amway distributors:

➢ 10% Retail Profit: Assists distributors in earning money right away by selling

products to consumers at retail prices

➢ Basic commission: Provides a commission to the distributor based on the

product sales made by the distributor personally and by their team Up to 10% of income comes from sales made by clients under the distributor condition (Requirement customers must be registered to become an : Amway distributor)

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➢ Core Plus: In addition to the standard commissions, Amway also offers a

unique Core Plus bonus plan that closely matches the standard bonus plan and enables distributors to earn more money sooner

1.5 Unique and Exclusive

MLM business enterprises, especially Amway emphasize strategies to differentiate

its products Through emphasizing the unique aspects of its products, Amway

is able to differentiate itself from other competitors in a similar product category and thus gain a differentiation advantage In addition, MLM business

enterprises also focus on improving product quality Product quality is closely tied

to word- -mouth reputation With strict quality control in the manufacturing of process, most popular direct selling products have a proven quality image over time, forming a solid foundation for domination their market

Today, Amway is known worldwide for its more than 450 unique products, from environmentally sensitive laundry detergent and cleaning supplies to nutritional supplements and high-quality skincare and cosmetics The brand Artistry™, for example, has been seen on the red carpets of some of the most significant events

in the world, from New York Fashion Week to the Busan International Film Festival Artistry Studio™ brand is the hottest new launch, with color makeup collections inspired by the most vibrant global cities Amway is also known for its earth-sensitive laundry products and cleaning formulas, and durable household products such as eSpring™, the world’s largest selling brand of kitchen water treatment systems

2 Amway’s achievement

Amway is the world’s largest direct selling company (as ranked by 2021 Direct Selling News Global 100, published in the June 2022 edition of Direct Selling News, based on 2021 revenues with $8.9B reported sales, 2021) Amway

manufactures and distributes nutrition, beauty, personal care and home products—which are exclusively sold in 100 countries through Amway Independent Business Owners (IBOs)

Amway reported sales of $8.1 billion USD for the year ending December 31,

2022 This represents an overall decline from 2021 sales of $8.9 billion due to the

strength of the US dollar, the sale of Metagenics, Inc (a non-direct selling entity), and the ceasing of operations in Russia On a constant currency basis, sales for Amway’s direct selling business were up 1.0% representing a third consecutive year of growth Several of Amway’s top markets experienced growth in 2022 including Mainland China, South Korea, Hong Kong, Malaysia, Taiwan and Vietnam

Amway currently holds over 900 patents and global patents and is in the process of registering nearly 430 more copyrights With nearly 800 employees

engaged in the research process, Amway has created, designed and invented new products that meet the needs of customers and the expectations of the global market In its product development program, Amway's engineering team uses existing customer capital to monitor and test new product ideas

Today Amway manufactures over 450 products, with manufacturing facilities in China, India, and the US, as well as Nutrilite organic farms in Brazil, Mexico and the US (California and Washington state) Amway brands include Artistry, Atmosphere, Nutrilite, Artistry Men, Xs Energy, …

C Evaluate the advantages and disadvantages of MLM model, opportunities and threats for Amway

1 Advantages and Disadvantages of MLM

- For business:

• Advantages:

➢ MLM is cost effective strategy a

➢ Large access to final customer

➢ Easy to get data from the customers

➢ Wide opportunities to become global

• Disadvantages:

➢ Negative perspective from people

➢ Strictly supervised by the government

➢ Structure & products can easily be counterfeited

- For individuals:

• Advantages:

➢ MLM offers opportunities to entrepreneurs

➢ Helps in development of communication skills

➢ Flexible schedule

➢ Mentorship

• Disadvantages:

➢ Network marketing is not for everyone

➢ Face-to-face interaction can be difficult

➢ It takes time to grow

➢ MLM Scams Alert

2 SWOT Analysis

Strengths

- Strong Global Presence

Amway has a strong global presence,

established in 1959 and sustainably

existed for 64 years in the market, with

Weaknesses

- Limited channel of products distributions

Amway’s channels consist of: ABOs network, website and app Amway

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